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Wilson v. Sound Leasing Co.

June 4, 2007

CHRISTOPHER ALLEN WILSON AND JANICE M. WILSON, APPELLANTS,
v.
SOUND LEASING CO., INC., ET AL. APPELLEES.



The opinion of the court was delivered by: Hon. Barry Ted Moskowitz United States District Judge

COURT ORDER GRANTING RELIEF FROM AUTOMATIC STAY PUGET ORDER AFFIRMING BANKRUPTCY.

Janice M. Wilson ("Debtor") and Christopher Wilson (collectively "Debtors") appeal from the Bankruptcy Court's order granting Puget Sound Leasing Co., Inc. ("Puget") relief from the automatic stay. For the reasons discussed below, the Court AFFIRMS the Bankruptcy Court's order.

I. BACKGROUND

On July 28, 2004, Puget obtained a judgment against Janice Wilson, formerly known as Janice Ranguindin. In September 2004, Puget obtained a judgment lien against Debtor's residence in San Diego County and a debtor's examination lien against Debtor's personal property, including a Dodge Durango.

Debtors filed a Chapter 13 bankruptcy petition on June 30, 2005. Debtors' Plan was confirmed on November 29, 2005. Debtors' schedule lists Puget as a secured creditor and the Plan provides for payments to Puget in the amount of $291 per month without interest during the pendency of the bankruptcy case.

Puget claims that it did not know that Debtor had filed for bankruptcy until some months after Debtors' Chapter 13 plan had been confirmed because Puget did not know that she had changed her name. Accordingly, Puget filed its proof of claim for $21,851.46 after the claims bar date. Debtors objected to the claim as untimely, and the Bankruptcy Court sustained Debtors' objection. The Bankruptcy Court noted in its tentative ruling that Puget's claim "remains secured by whatever assets it attached to pre-petition when the judgment lien was filed and rides through bankruptcy . . . ."

Two months later, after having received no payments, Puget filed a motion for relief from stay to foreclose on its liens. The Bankruptcy Court granted the motion for relief from stay, rejecting Debtor's argument that the disallowance of Puget's claim as late-filed extinguished Puget's lien. The Bankruptcy Court found that the failure of Debtor to make post-petition payments on the debt established lack of adequate protection to Puget.

Debtors appeal the Bankruptcy Court's order granting Puget's motion for relief from stay. After filing their notice of appeal, Debtors filed with the Bankruptcy Court a motion for stay of the Bankruptcy Court's order pending appeal. The Bankruptcy Court denied Debtors' motion for stay without explanation.

In an order filed on February 20, 2007, this Court granted Debtors' motion for a stay of the Bankruptcy Court's order pending appeal. The Court required Debtors to post a bond in the amount of $2,000 with the Clerk of the Court.

II. DISCUSSION

On appeal, Debtors argue that the Bankruptcy Court erred in granting Puget's motion for relief from stay because (1) Puget's liens are void or voidable as a result of the confirmation of the Chapter 13 Plan; (2) Puget had no interest in property that could form the basis of a finding of lack of adequate protection; and (3) Puget's relief from stay argument was barred by the res judicata effect of the confirmed Chapter 13 Plan. The Court does not find any of these arguments to be persuasive.

A. Puget's Liens Survive Bankruptcy

Debtor contends that because Puget was "provided for" in the plan, upon completion of the Plan, Puget's claim against Debtor will be discharged and the liens will be either void or rendered valueless. The Court disagrees.

As provided by 11 U.S.C. ยง 506(d)(2), "[t]o the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless . . . such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title." Debtors suggest that section 506(d)(2) is inapplicable here because Puget actually filed a claim that was disallowed because it was untimely. However, "one would not ...


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